Six Tips to Saving on Tax Preparation Fees

It is a common human trait to procrastinate about things we dread, like getting our taxes done. Most of us read tips every year on how to save on our income taxes — but I wondered, could I also be paying less in preparation fees? I posed these six questions to my C.P.A.

What is your number one tip for saving money on your fees?

In a word: organization. Most people have heard about the dreaded “shoe box full of receipts.” That is not a myth! People actually do bring in boxes or bags of receipts to have their tax returns done. That is just one of several ways to rack up a big tax preparation fee. Your accountant or tax preparer has only their time and knowledge to sell, and for most professional preparers, tax season is their prime season to make a living. Their time is most valuable from the end of January through mid-April, and if you need a lot of that time, you will pay.

When, ideally, do you want a client to schedule a meeting with you?

You might think the answer to that would be, absolutely, “the sooner the better,” but that is not necessarily true. Too often, early birds make an appointment, and then when the time arrives, they have not yet received all of their tax documents or information. Then, they either have to reschedule their appointment when things are starting to get booked up, or they come in without all of their information. That is usually a mistake, as far as fees go.

What sort of paperwork do I need to cough up?

That, of course, depends upon the complexity of your finances, and your tax situation. The basics would include W-2s, 1099-INTs, and 1099-DIVs. More involved investors might have multi-paged tax statements. While all of the above documents are required to be mailed to you by January 31st, they often are not. People who own partnership or S-corporation interests will receive K-1s. Estates and trusts also sometimes issue K-1s. The deadline for mailing these out is later, depending upon the reporting entity. These are often the hold-up for recipients getting their returns done.

If you do a lot of investment trading, you should receive one or more 1099-Bs showing the proceeds of your sales, but that is only half of the information. You will need to provide your preparer with basis information in order for them to calculate your gain or loss on the sale. This can be very complicated if you inherited, or were gifted, assets that you sold. Otherwise, it is only as complicated as how much you paid for the assets you purchased yourself. Often, if you are with a full-service broker, and you bought the investments through them, they will have kept track of your purchases, as well as any adjustments such as reinvested dividends, stock splits, etc., and will provide you with a statement calculating your basis. If you do not have a brokerage that provides that service, you will need to do the homework yourself. Dig all of this information out before you meet with your preparer, and you will save them a lot of time.

If you are able to itemize your deductions, you will need to provide a lot more information, and much of it is information you need to keep track of, yourself. No one is required to mail you a statement summarizing your charitable deductions, or your various taxes paid, for example. This is one area where you can save your preparer a lot of time, and save yourself a lot of fees. Once again, come prepared. Use your prior year(s) returns as a guide. Go through the information you have provided your preparer in the past, as well as the Schedule A (for itemized deductions) and collect all of that same information for the tax year in question. You may have some new circumstances that require you to gather more information than you have in the past. If you have such a situation and are unaware of it, your preparer’s questionnaire and interview should uncover it. Go through the questionnaire completely and carefully, prior to your interview.

Does it help me save any fees if I have my information in a particular order?

Yes, it can certainly help. Simply put, having the information organized in the order in which the preparer needs it saves time. Look at your prior year return, and organize the information according to the first pages. The first line of income on the face of the return is Wages, so put your W-2s on top. The second line is Interest Income, so put your 1099-INTs next. You can even organize them in the order in which they appeared on the Schedule B, for bonus points, if your return required one the previous year. Next is Dividends, and so on. In addition to saving your preparer time, this can also point out to you whether you have forgotten anything, or not.

Suppose I have the best of intentions, but I just can’t get it together. What happens if I show up at the preparer’s office in mid-April?

First of all, prepare to be laughed at. You deserve to be the butt of preparer jokes, and you should take it like a responsible tax payer would. They will probably tell stories about you at their after-tax-season party. But seriously, expect to be put on extension, if your preparer is in a good enough mood to handle even that much for you, at that point. As a matter of fact, I always tell clients that, if they show up in April, be prepared for the possibility of going on extension. However, I always wind up getting most of them done, anyway. Remember, an extension to file your taxes is NOT an extension to pay your taxes. If you owe money and you don’t pay it with your extension, you will be penalized for late payment, if not late filing.

Do you have any other fee-saving words of wisdom?

Talk with your preparer about fees, and make them aware that you are serious about saving on them. A dirty little secret is that most preparers will never lower your fees without your asking, even if your return takes less time than in previous years. Some in the tax-prep business just take prior year fees and multiply them by a factor for inflation, unless someone complains.

Provide absolutely all of your information ONCE, and only once. Do not bring in a list of deductions scribbled on a piece of paper, then bring a pile of receipts that add up to the deductions on the paper (or, worse yet, DON’T add up to the amount on the paper). Don’t bring in two different lists with some of the same deductions written on each. You get the idea. Puzzles are fun, but you don’t want to pay your preparer to solve yours.

On that same topic, keep in mind that if YOU take the responsibility to provide an accurate list of deductions, that alleviates the risk on the preparer. If you bring them a stack of receipts, they have to scrutinize them, sort them, and add them up twice, to make sure their numbers are accurate, because their reputations depend on accuracy. That “adds up” to a big difference in time. However, it is not their job to audit you, if you will attest to your own, summarized numbers. Hopefully, it will never be anyone else’s job to audit you, either; but if and when it is, you will be the one in the hot seat, if you have fed the preparer the numbers. Keep that in mind.

If you do not have anything complicated, or different from prior years, to discuss with your preparer, ask the receptionist whether you can just drop off your information without going through an interview. Often, the interview time is wasted catching up socially with your preparer, and if I have established nothing else, I hope it is that time is money. Drop into the office some other time during the year, to chat. But still find a way to make your preparer aware that you want to save fees, and you have attempted to provide the information in such a way as to do so. A note with your tax information would do the trick.

Tax preparers are human beings (really!). They are under a lot of stress at that time of year. Though they are in business to make money, a thoughtful gift, like a healthy snack, a vitamin water, or some nice coffee or tea usually finds its way into the bill calculation process; and it might give you a warm, fuzzy feeling.

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Just out of curiosity, how does the tax preparer feel about doing your taxes on your own with something like Turbo Tax? What are the benefits of hiring a professional? For instance, do you save more by doing taxes yourself with the potential of making a mistake, or is it worth it to pay a lot more to have a professional do them for you?

Many of the franchise tax preparation companies offer training to help you learn to do taxes. The cost for the class can cover a large range depending on the city/state. It does take about 40 hours of your time so you have to consider that as well.

The training can help you significantly in preparing your taxes. Unless you have a very simple return, you will often benefit by getting a professional to look at your taxes.

I would suggest a couple of other ideas on saving money with your fees.

1) Call now to sit down with them to see if there are actions you can take between now and the end of the year to generate deductions.

2) Find out when their slow time is during the tax season. March is usually a slow time for most firms though depending on the number of business returns they do it varies. If you are willing to visit during the slow part of the season, you can often get a discount.

3) Do them yourself and have the pro do a review. Many companies will do a free review or only charge you a smaller efile only fee if they are correct. You won't get the same number of questions doing it this way so may miss some deductions but you do at least know that your math is correct.

Once you know how they should be done, you can do them yourself unless things dramatically change. Many people I know can do their own taxes, they simply choose not because they want a professional available if they ever get a letter from the IRS.

My dad took tax prep certification classes through H&R Block last fall, when he was unemployed. After the initial cert class, there was another class which was basically how to be a good salesman. He quit at that point because he hates sales and said he'd never work for them. He just couldn't see charging someone several hundred dollars for a tax return and still being able to sleep at night. He now works for a small place where it's just him and the owner, who I believe is a CPA. The highest fee they charge is $69 for the most complicated returns, they don't upsell, and their customer retention is about 95% (as compared to H&R Block's roughly 50%). I'm sure there are other little places out there, but it's probably like mechanics - the good ones don't need to advertise. So if you're tired of paying an arm and a leg for tax prep, ask around for recommendations.

And about TurboTax, my dad says he can almost always find deductions and such that his clients missed in attempting to do it themselves. Just for everyone's information.

I asked my C.P.A. about Ellen's question ("How does the tax preparer feel about doing your taxes on your own with something like Turbo Tax? What are the benefits of hiring a professional?)

His reply: "There are some user-friendly tax software programs available to consumers. If your return is fairly simple, you are comfortable with the software, and you have the time to spend doing your own tax return, they are a good option. However, if you are not willing to put in the effort to check your work carefully, this may not be your best bet."